In our last article, we considered the first four of eight reasons you should never even consider a payday loan. In this second instalment (pun intentional) we will consider another 4 reasons payday loans are just a straight up terrible idea.
It’s true, no one enjoys being short on cash. It’s stressful and has been known to drive people to desperation. Sadly, payday loan providers are waiting to capitalize on this desperation. But before you sign on the dotted line, consider this:
Reason #5 – Lenders May Demand More
Payday loan providers make a lot of money by offering high risk loans to “high risk individuals” (their words, not ours) and get high rates of return. They are not in the business of losing money, therefore collecting, or protecting their loans is of paramount importance to them. To ensure they’ll get their money back, some lenders will require access to your bank account. And not just “access” but will get you to sign over the rights to automatically charge your bank account at the end of the term loan, regardless of whether you are already overdrawn or not. Of course, if you ARE overdrawn, you will rack up more fees toward that loan. Most lenders sadly don’t even realize they’ve given this access, until it’s too late.
Reason #6 – Looks Can Be Deceiving
At first glance, payday loans look like a great idea. “What could go wrong? Get some cash until payday loan, it’ll just be this once.” The problem is that these loans set you up to fail. They are designed to make you reliant on cash you haven’t got, let alone earned yet. What’s more, if you can’t make ends meet on the cash you already have, loaning against future earnings means your future earnings are worth half now, of what they will be worth in just a few weeks. By one study, the average $375 loan costs $520 to pay back. That means the $375 you haven’t earned yet, is worth $230 today! ($520 payback amount, less $375 original loan = $145 in fees, to loan $370. $375-$145 in fees = $230) To put that in other terms: if you earn $375 a week, you’re making $9.37 an hour. If you get a loan against that wage, you’re reducing your hourly wage to $5.75!
Reason #7 – The Loans Aren’t Long Enough
The typical payday loan is two weeks. That is simply not enough time to recover your debt. The window of time you have to repay your loan and all the interest is very short. Too short for most people. Many end up taking out another payday loan, to pay the original. The slippery slippery slope.
Using our earlier example, if you make $375 a week, and the buying power of your income is now reduced to $230, and the cost to pay back the loan is $520, how are you going to come up with the other $190 in just two weeks? Let alone all your other bills and costs of living like, say; eating every day? This is how payday loan companies get you stuck reliant on them, and how you slip into a deep deep dark hole of debt.
Reason #8 – Round and Round You Go
As noted in our previous article, roughly three-quarters of payday loans are to pay some other debt. Meaning a bill has come due and you don’t have the cash to pay it. When you start loaning money to pay other debts, you’re just shifting the debt, you’re not paying it, and eventually you’ll run out of sources to shift that debt too. Rather than seeking to help you deal with your short term debt issue, payday loans seek to make you in-debted to them. Shifting money around might work for the short term, but it will eventually catch up to you. It’s not a recipe for success in the long run and is another reason to avoid payday loans.
Don’t Get Trapped
Payday loans aren’t all they’re cracked up to be. If you want to avoid getting stuck in the endless cycle of misery, come up with alternatives when you’re short on cash. There are plenty of them. A pawn loan for example, allows you to take a 3 month, low interest loan against an item of value you already own. This is not new debt, but a bridge to help you get from one side of your short term cash troubles, to the other side, where a more financially stable you waits.